Twitter Inc. Earnings: Is Another Rout Coming?

On Tuesday, Twitter (NYSE: TWTR  ) will release its quarterly report, and shareholders have punished the social-media stock after an impressive run following its initial public offering last fall. Yet even as it and LinkedIn (NYSE: LNKD  ) have struggled so far in 2014 and even Facebook (NASDAQ: FB  ) has seen its share-price gains erode over the past couple of months, Twitter has to remain focused on whether it can become a larger part of the social-media mix and find new ways to monetize its unique advantages over Facebook and its peers.

Twitter inspires a wide variety of opinions among investors, with some belittling the microblogging site while others see the huge potential for marketing opportunities from its popular website. But as Facebook has embarked on a campaign to grow itself exponentially while LinkedIn has honed in on the business community, Twitter is left with a big decision to make about what direction it wants to take in the future. The wrong choice could leave Twitter behind in the social-media hunt at a time when some investors are concerned about bubble-like conditions in the space. Let's take an early look at what's been happening with Twitter over the past quarter and what we're likely to see in its report.


Source: Twitter.

Stats on Twitter

Analyst EPS Estimate

($0.03)

Year-Ago EPS

($0.21)*

Revenue Estimate

$241.47 million

Change From Year-Ago Revenue

111%

Earnings Beats in Past 4 Quarters

1**

Source: Yahoo! Finance. * Based on pre-IPO share count. ** Out of 1 quarter since IPO.

How soon can Twitter earnings go positive?
Analysts have generally been upbeat about Twitter earnings in recent months. They've kept near-term estimates unchanged, but they've boosted their 2014 and 2015 full-year projections and now expect profits in both years. The stock, though, has plunged, falling 33% since late January.

Twitter's fourth-quarter earnings results showed the magnitude of the challenge that the social-media company faces in its battle against Facebook. Revenue growth was much greater than investors had expected, and the company posted an unexpected adjusted profit. But Twitter's sequential growth in monthly active users slowed to 9 million worldwide and 1 million in the U.S., suggesting that Twitter could have a lot of trouble getting past the 250 million to 300 million range if that rate of growth decay continues. Moreover, with Facebook adding more than four times as many new active users, Twitter is falling further behind rather than making up lost ground. Twitter stock dropped by almost 25% in a single day after the announcement.

Source: Twitter.

Other signs confirming Twitter's growth slowdown have forced the company to take action. In February, researchers at eMarketer said that Twitter's growth would slow from almost 20% in 2013 to 10% next year and 6.4% by 2018. In response, Twitter has tried to make it easier for users to share photos and videos, a strategy that Facebook has used to bolster its own traffic. Yet with difficulty in retaining active users and with poor engagement levels that compare poorly to Facebook's more active base of users who use the service on a daily basis, Twitter faces a fundamental question about whether microblogging has a strong future.

One area where Twitter has excelled, however, is in advertising. Revenue from ads jumped 76% in the fourth quarter from year-ago levels, showing that when Twitter does have an audience, it can target it extremely well and convert on monetizing opportunities. Twitter's recent purchase of Gnip also has the potential to bolster that potential, with the data-analytics business offering Twitter the chance to sell the data it collects from its user base to corporate customers hungry for information on the social-media company's users.

In the Twitter earnings report, watch to see what the social-media company has to say about its user growth and recent acquisitions. With so much at stake at this critical time, Twitter can't afford to let Facebook steal away growth if it wants to match up to its larger rival in the long run.

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